Tag: citizenship as a weapon

Why is the United States imposing full U.S. taxation on the Canadian incomes of Canadian citizens living in Canada?

Cross-posted from citizenshipsolutions

by John Richardson

This is post is “based on” (not identical to) one of two submissions that I submitted in response to Senator Hatch’s request for submissions regarding tax reform.

__________________________________________________________

Why is the United States imposing full U.S. taxation on the Canadian incomes of Canadian citizens living in Canada?

The Internal Revenue Code mandates that ALL “individuals” , EXCEPT “non-resident aliens”, are subject to full taxation, on their WORLDWIDE income, under the Internal Revenue Code. The word “individuals” includes U.S. citizens regardless of where they live and regardless of whether they are citizens and residents of other countries where they also pay tax. This means that, by its plain terms, the United States imposes full taxation on the citizens and residents of other nations, because they are also (according to U.S. definitions) U.S. citizens. The United States is the only country in the world that has a definition of “tax residency that mandates full taxation based ONLY on citizenship.

How “U.S. citizenship” and U.S. “taxation” interact

Principle 1: The United States is one of the few countries in the world that confers citizenship based SOLELY on birth on its soil.

Principle 2: The United States is the ONLY country in the world that imposes full taxation ON THE WORLD INCOME of its citizens, REGARDLESS OF WHERE THE U.S. CITIZEN LIVES IN THE WORLD.

Bottom line: The United States is the ONLY country in the world that imposes full taxation, on WORLDWIDE income, based ONLY on the “place of birth”!

A practical example: A person whose only connection to the United States is that he was born in the United States, who lives in Canada (and may have never lived in the United States and whose only income is earned in Canada), is required to pay U.S. tax on that income.
This resident of Canada is treated AS THOUGH HE WAS A U.S. RESIDENT.
NOTE ALSO THAT THIS INDIVIDUAL IS REQUIRED TO PAY TAX TO CANADA! He is subject to “double taxation”. (This “double taxation” is only partially mitigated through “foreign tax credits”, tax treaties and the “foreign earned income exclusion”.)

Therefore: What academics and government officials refer to as “citizenship-based taxation” (they really don’t understand its practical effects) is PRIMARILY “place of birth taxation” and therefore a convenient way to impose U.S.
taxation on the citizens and residents of other countries. As a blog devoted to “citizenship taxation” (noting the difference between the theory and reality) points out:

“A supporter of citizenship taxation is someone who THINKS about “citizenship taxation”. An opponent of citizenship taxation is anybody who has tried to LIVE under citizenship taxation.”

How did this happen? It certainly didn’t start this way!

The evolution of “U.S. citizenship”

The result of legislative change and various U.S. Supreme Court decisions (primarily Afroyim ) has meant that “U.S. citizenship” is far easier to obtain and far harder to lose.

Furthermore, as people become more and more mobile, it is not unusual for somebody to have been “Born In The USA” but live outside the USA.
Global mobility is now the rule, rather than the exception.

The evolution of U.S. taxation and the Internal Revenue Code

The Internal Revenue Code has become more and more complex and impacts more and more activities of daily life.
Because “U.S. citizens” (even though they are citizen/residents of other
countries) are subject to U.S. taxation, they have been tremendously impacted by the “creeping complexity” of the Internal Revenue Code (which applies equally to ALL Americans wherever they may live).

This “creeping complexity” has evolved slowly through the years. The problems have been exacerbated because Congress does NOT consider that when amending the Internal Revenue Code they are impacting the lives of tax paying residents of other nations (who happen to be U.S. citizens).
Congress is “indifferent” to the plight of Americans abroad (indifference being one of the worst forms of abuse).

Through the years, slowly and consistently …

The evolution of the Internal Revenue Code combined with ease of retaining U.S. citizenship has built a “fiscal prison” (legislative brick by legislative brick), in which to keep the tax paying residents of “OTHER NATIONS”, who just happen to have been born in the United States.

Tax Reform 2017

The United States is “making noises” about “tax reform”. Senator Orrin Hatch requested submissions from “steak stake holders” on what should be included in tax reform. He has clearly received (as did the Ways and Means Committee in 2013 and the Senate Finance Committee in 2015) many suggestions advocating the repeal of “citizenship-based taxation”.

As noted at a site compiling the submissions of those affected by U.S.
extra-territorial taxation: Continue reading “Why is the United States imposing full U.S. taxation on the Canadian incomes of Canadian citizens living in Canada?”

The Biggest Threat to America Does NOT Lie Outside its Borders

 

 

The biggest threat to America does NOT lie outside its borders. The biggest threat to America is the Internal Revenue Code and its absurd rules governing international taxation (the taxation of U.S. citizens and U.S. corporations on revenue generated outside the United States). The bottom line is that the Internal Revenue Code has (not is) destroyed the ability of U.S. citizens and corporations to compete outside the United States.
by John Richardson
 
This is because of the peculiarly U.S. practice of:

1. Who the USA taxes: Taxing all U.S. citizens who live in other countries and pay taxes to those other countries (every heard of double taxation?) Why is the USA attempting to impose taxes on the residents of other nations?

2. What income are they taxed on: Using a system of “worldwide taxation” (meaning that the USA imposes taxation on income earned in other nations).

Time out for a second –
(1) this means that the USA taxes U.S. citizens who DO NOT even live in the USA on income NOT ASSOCIATED with the USA!
(2) U.S. corporations who have the gall to attempt to do business outside the USA are subject to taxation on those profits
(when corporations based in other countries are not – Hello!!! Talk about giving a competitive advantage to non-U.S. companies)

3. How (what are the U.S. tax rules that apply to U.S. citizens abroad?) are citizens a taxed on this “foreign income”. Answer according to U.S. tax rules that as though the income was earned in America. Because, Americans abroad live their lives outside the USA (committing “personal finance abroad”) they are subject to the punitive U.S. tax rules that apply to anything “foreign” (including the penalty laden reporting requirements. This results in U.S. citizens abroad being technically being subject to higher U.S. taxation than Homeland Americans! (Things like the foreign tax credits are designed to mitigate the actual U.S. tax owed.)

Bottom line: The Internal Revenue Code has (not is) completely destroyed the ability of U.S. citizens and corporations to exist and profit outside the United States. Perhaps some people think that this is okay. But, most will realize in a global world that this is a bad bad bad thing.

Therefore (coming back to tax reform) the USA needs to do the following:

1. Stop attempting to impose taxation on the residents of other nations (that just happen to be U.S. citizens). Stop the U.S. practice of “citizenship-based taxation” and move to a system of “residence/territorial based taxation”.

2. Stop discriminating against its own corporations by imposing taxation on their economic activity outside the United States. America: STOP punishing your own corporations! They are run by Americans. Their shareholders are Americans. Why does the Internal Revenue Code hate them so much?

The discussion of the “border adjustment tax” in this article is a bit of a red herring. It is irrelevant to the fundamental tax reform that is actually needed.

But, for the record (if it matters):

The border adjustment tax is just a way to punish imports to the USA. It will simply make imports more expensive to every day people. There has been an ongoing debate about this idea for months.

What we KNOW about a border adjustment tax: It will raise the cost of imports to the USA

What we DON’T KNOW about the Border Adjustment Tax: Whether somehow the decrease in demand for imports (because they are now more expensive) will somehow result in adjustments to exchange rates that will somehow result in price adjustments.

Furthermore, the border adjustment tax would (likely ) violate international trade agreements.

Yes, it’s time to get with the “tax reform program”. It’s time for the USA to

(1) STOP attempting to tax economic activity that is unrelated to the USA (move to territorial taxation) and
(2) stop attempting to impose taxation on the residents of other nations (stop citizenship based taxation).

There are reasons why individuals are renouncing U.S. citizenship and U.S. corporations are inverting.

Will these changes to the system of “international taxation” happen? Maybe and maybe not. Was it Winston Churchill who said:

“You can always count on Americans to do the right thing – after they’ve tried everything else.”

Hands Down this is the Worst Academic Piece About FATCA ever Written

 

 

Profesor Paul Caron, on his TaxProfBlog posted the following article:
CONSIDERING “CITIZENSHIP TAXATION”:
IN DEFENSE OF FATCA 20 Fla. Tax Rev. 335 (2017):
by Young Ran (Christine) Kim

 

If any description could possibly be demonstrated over & over in this piece it would be the term “offensive.”  I confess to a hard-edged bias against academia, likely for the same reasons as most people; i.e., the rather noticeable and consistent lack of everyday common sense. Even in my own field (piano performance, where a doctorate is called a DMA not a Phd) there is a prevalence of people who may be perfectly schooled in the accuracy of Baroque ornaments, precise methods of articulation in Classic-period pieces or any number of other tedious accomplishments yet their actual playing (which is the whole point of a performance degree vs an academic one) is so devoid of vitality and inspiration it is enough to make one weep. I don’t know if the same exists in all disciplines but one thing that does apply here is a complete (and I mean complete) lack of awareness on the part of the author, of the harshness of how these theories play out on the lives of REAL people. What would make much more sense would be to address these problems head-on rather than justify “concepts” through a lot of theoretical jargon.

 

The following comment says it well:

 

The people affected by “citizenship-based taxation” are U.S. citizens and Green Card holders who live outside the USA and are “tax residents” (and often citizens) of other nations. The paper discusses (sort of) “citizenship-based taxation” as an abstract concept without considering the brutal effects that it has on the people subjected to it. The acknowledgement of the difficulties with pensions, retirement planning, foreign spouses, mutual funds, CFC rules, etc. (the reality of citizenship taxation) is most notable in its absence. And no, FBAR and Form 8938 (as obnoxious as they may be) are reporting requirements and not the specific tax rules (PFIC, etc.) that affect Americans abroad. I suspect that this paper will be subjected to the criticism that it so richly deserves.

Posted by: John Richardson | May 26, 2017 1:14:02 PM

While this criticism can be equally leveled at the members of Congress who passed FATCA, the Treasury Department personnel who wrote the regulations and last but not least, the heartlessness of many tax compliance practitioners, there is something especially repugnant about those pontificating from their ivory towers, proclaiming that FATCA, citizenship-based taxation, global transparency and all the rest of it, are worth the grief being caused.

Ms Kim indicates her paper finds its origins in Ruth Mason’s recent article, Citizenship Taxation, [89 S. Cal. L. Rev. 169 (2016),

A major difference between the two is that Ms Mason basically sees citizenship taxation in a negative light while Ms. Kim attempts to find it as a natural basis to support FATCA.

She addresses three main arguments; the fairness argument, the efficiency argument and the administrative argument.
 

I.) THE FAIRNESS ARGUMENT

 

Individual taxpayers’ obligations to file Foreign Bank Account Reports (FBAR) or report under the Foreign Account Tax Compliance Act (FATCA) are not seriously onerous. The fact that citizenship taxation along with FBAR and FATCA enhances global transparency further supports the case for citizenship taxation……..because the rules have been improved through various exceptions and substantially high reporting threshold amounts.

Ms. Kim asserts that the obligation to file FBARS is not “seriously onerous.” The very real threat of a non-willful penalty of $10,000 per account per year (or worse for “willful) is certainly enough to strike the fear of God in even the most reticent individual. The idea that this reality is not considered when evaluating FBAR is beyond reasonable. Articles about FATCA often cover only the reporting done by the FFI’s. However, the other component is the requirement to file 8938’s which duplicate information from the FBAR and can incur serious penalties. The average person is not able to complete an 8938 and will have to pay to have a professional do it. Nowhere in this article does the author address the issue of compliance costs for individuals which can easily be $2500 a year for someone owing no tax and involve 50 or more pages of returns. Not onerous? Furthermore, there are simply NO FIGURES yet, to make any claim that FATCA “enhances global transparency.” Professor William Byrnes describes
the oft-quoted figure of $10 billion. This amount has absolutely NOTHING to do with FATCA; it is largely comprised of penalties and interest collected through the OVDI programs (and does not even represent actual tax recovered). While the FATCA thresholds are higher, please, the threshold for FBAR remains at $10,000, the same figure when the Act was created in 1970 – 47 YEARS AGO!
 

FOCUSING ON THE ABILITY TO PAY PRINCIPLE

First, consent theory argues that taxing nonresident citizens is justified because retaining citizenship represents consent to such taxation.

 
One cannot consent to something one doesn’t even know about. Is the author completely unaware of the history underlying the persecution of expats once Treasury/Justice went after the Swiss banks in 2008? There are still likely more Americans abroad who remain unaware of the obligation to file taxes and worse yet, the oppressive information returns with penalties simply for not filing a piece of paper (i.e. no tax due). For those who do know and who retain citizenship, keeping it is much a matter of confusion and fear and could hardly be described as “consenting to taxation.”

 

Second, benefit theory attempts to justify citizenship taxation as an obligation of nonresident citizens in return for the benefits they receive from the government.

This argument is so ridiculous at this point it is hard to believe it remains part of the discussion. Cook v Tait is nearly 100 years old and does not address the large changes globalization has produced. There is the endless  nonsense of hearing how “The Marines will come to rescue you,” after which you receive a full bill. How many living in first-world countries have any need for “rescue?” And last but not least we “owe” the U.S. for consular services (for which we pay, dearly in the case of renouncing – $2350 or $50 USD to notarize a single page). All tiresome and nowhere near justifiable for being taxed “the same” as Homelanders.

 

Third, social obligation theory

the underlying assumption of this theory is that people have an obligation to pay taxes to support the members of the society to which they belong in accordance with their ability to pay taxes, which should be measured by their worldwide income.

I remember my reaction to Prof Michael Kirsch’s comments (at the ACA Program in Toronto, May 2014, “CBT vs RBT”)regarding polity and such. It seemed ridiculous to me to consider those of us living outside the United States as being a member of that society in any meaningful way. In my own life, now 35 years outside the U.S.(over half my life), the only times I identified as a “member ” of U.S. society was when defending against strong anti-American sentiment (the first few years away) and national tragedies such as 911. I cannot see any way that those infrequent occurrences defined me as being an American more than being a Canadian.  I would say a more meaningful and valid way to apply the social obligation theory is whether or not I support policies that promote the social welfare of those around me, whether or not I give the homeless guy I see everytime I go to the bank, a bit of money so he can buy some lunch. IOW, except in an idealistic or nostalgic way, one can really only measure his/her “social obligation” based upon what they come face-to-face with, i.e., where they live.

 

Due to the different factors affecting the ability to pay, such as difference in the standard of living or amenities between places, “it would be fairer to calculate a person’s ability to pay by reference to the place where she lives rather than to the place where she holds her citizenship.”

“actually tax them alike,” which would require the repeal of the foreign-earned income exclusion and the allowance of unlimited foreign tax credits, including foreign consumption taxes, as well as the implicit taxes and subsidies to compensate the differences.

 

While all expats readily understand the reality that they are NOT “taxed the same” as Homelanders, the idea of being able to adjust all these factors to the number of foreign countries with all the differences in structure etc., absolutely discourages any realistic notion that this could ever be accomplished. Current retirement-oriented plans such as the Australian Super; the lack of recognition of tax-deferred vehicles registered by governments being treated the same as their US equivalents; requiring capital gains tax on the sale of principle residences which are tax-free in the countries where they are located ; and above all else, the obscene “savings clause,” all speak to the built-in bias the US has for anything “foreign” and its pronounced tendency to punish people for making use of non-US instruments. Add the effect of the Patriot Act, which makes it impossible to even open a US account with a foreign address and a non-resident American understandably lacks the will to try and weave one’s way through all these complicated, impossible-to-delineate requirements and procedures. The fact that the IRS does not clarify ambivalent sections such as §877A as well as the fact that no two compliance professionals can be counted on to give the same opinion is proof positive that disparate tax systems simply cannot be adjusted “fairly.”
 

when its critics condemned the new obligations to file FBARs and FATCA as an excessive compliance burden for nonresident citizens created by the Bank Secrecy Act.

There are no “new” obligations to file FBARs; they have been required (and unenforced) since 1970 and are part of Title 31. FATCA was NOT created by the Bank Secrecy Act. It comprises part of the H.I.R.E. Act (2010) and is part of 26 U.S.C. § 1471–1474, § 6038D.

II.) THE EFFICIENCY ARGUMENT

citizenship taxation may distort both Americans’ and non-Americans’ citizenship decisions, is not convincing

American citizenship renunciation rate is not particularly serious compared to other countries

residence-based taxation confronts an additional hurdle on top of enforcement difficulties: determining the residence of the individuals. Determining residence by considering all facts and circumstances creates problems beyond enforcement difficulties. The facts-and-circumstances test itself contains inherent problems when compared to a bright-line test

….and to what extent renunciation is treated as immoral and/or illegal, and so on.

The idea that citizenship taxation does not affect the decisions of Americans abroad concerning their citizenship is patently absurd. Without question, citizenship taxation IS THE MAIN REASON anyone renounces. Not because of tax per sé (don’t even think of trying to scare with the Reed Amendment) but rather, due to all the complications of trying to match two different tax systems. Add the non-financial issues such as the stress on marriages (to “aliens”), passing U.S. citizenship on one’s children, etc. etc. It has become a nightmare not worth living and something to escape if one can.

Ms. Kim devotes a long section to establishing the idea that the renunciation rate of U.S. citizens is “not particularly serious.” Again, we have someone indicating that unless the numbers are large, whether compared to that of other countries, the proportion of renunciations to the numbers of those abroad or to the number of entering immigrants, there is nothing being lost here. If that is the case, then the U.S. has virtually nothing to lose by simply letting these people go without all the forms, swearing under penalty of perjury and so on. One might occasionally consider that Americans abroad were once the best ambassadors the country could have. Now those tables are turned and some are more anti-American than any “alien” could ever be. Nothing like betrayal to warm the heart.

Regarding determination of residency, it is interesting that all 191 other countries of the world are able to surmount this difficult obstacle, which will be even more pronounced once CRS is operative. The “bright line test” which I presume means using citizenship rather than residency to base reporting on, is not truly useful given the fact that only the U.S. (Eritrea does not count) does this. When a U.S. citizen is living abroad with dual citizenship, with no determinant indicia, ask any bank how easy it is to establish whether or not one is a U.S. citizen. If it were clear, one would not see so many institutions refusing to serve Americans.

The Expatriation Act of 1868 gives all Americans the right to give up their citizenship if they so desire. It is not an issue of illegality. When a country treats its own citizens in the manner we have experienced from 2009 onwards (particularly the Accidental Americans who are not American in any normal understanding of the term), who is there to even suggest renunciation is immoral?

III.) THE ADMINISTRATIVE ARGUMENT

ENFORCEMENT DIFFICULTIES

Citizenship taxation has been criticized as difficult to enforce on nonresident citizens abroad….Determining residence by considering all facts and circumstances creates problems beyond enforcement difficulties

Next to failing to point out the outrageous 30% withholding “sanction” inflicted on every other country of the world, this has to be the weakest argument in this paper. The fact that the U.S. cannot effectively collect anything outside of the country is the number one reason people feel safe in remaining “under the radar.” After the initial scare of 2009/2011 seeing that the people hurt the worst were those who tried to do the right thing, people started considering the reality that being identified (“caught”) may amount to virtually nothing for a number of reasons. First of all, the majority of expats who are not compliant are NOT wealthy tax cheats with foreign accounts in order to deprive the U.S. of tax revenue. They are first of all, compliant where they live, which speaks volumes. Secondly, they have these “foreign” accounts in order to live their lives. This is in no way comparable to Homelanders who are guilty of tax evasion when they stash money in tax havens (and let’s not forget Delaware, Nevada, South Dakota and Wyoming, shall we?). The Revenue Rule still stands; even the 5 countries with Mutual Collection Agreements (Canada, Denmark, Sweden, France and the Netherlands)WILL NOT collect on those who were citizens of their countries at the time the tax was incurred. Canada WILL NOT collect FBAR penalties. With regard to fear about crossing the border, if one is not in the U.S. system, there is nothing for the IRS to report to DHS or CBP etc. All these things may change over time but as it stands now, the most IRS can do to most people, is send them a letter asking them to pay. EXACTLY WHAT IS THE POINT OF HOLDING ON TO CBT IF THERE IS NO WAY TO COLLECT?

Is the Compliance Burden Actually Onerous?

the IRS has provided the OVDI that a U.S. taxpayer can utilize to avoid criminal sanctions for the failure to report the existence of, and income earned on, a foreign account on tax returns as well as for the non-filing of the FBAR. In exchange for avoiding criminal sanctions, taxpayers will generally be subject to a 27.5% penalty on the highest aggregate value of their undisclosed offshore assets.86 In addition, for non-willful violators, IRS provides Streamlined Filing Compliance Procedures (SFCP), a program that was expanded in 2014 to cover a broader spectrum of U.S. taxpayers residing abroad and to provide penalty relief. Therefore, nonresident citizens who no longer have a strong economic and social connection with the United States or happenstance Americans are no longer likely to be subject to the severe FBAR penalties.

To suggest that OVDI and Streamlined “make everything alright” is to avoid the real issue altogether which is that citizenship taxation is simply wrong. No other country on earth “claims” its citizens for life. (Eritrea does not count). No other country on earth taxes its citizens after they abandon residence. No other country on earth applies an Exit Tax on assets that were acquired prior to obtaining residence in that country. There are reasons why no other countries do any of the things associated with citizenship taxation. It’s high time the United States stop this appalling abuse of human rights.

THIS ARTICLE FURTHER AIMS TO DEFEND the administrability of citizenship taxation in conjunction with the Foreign Bank Account Reports (FBARs) and the Foreign Account Tax Compliance Act (FATCA).

FBAR-absolutely not the way it is being conceived of now. FBAR, created in 1970 was aimed at uncovering money being laundered in smuggling, the drug trade and terrorism. It also was not originally conceived of being applied to those outside the U.S. Once the DOJ/Treasury departments went after the Swiss banks, they realized they could stretch the intent of FBAR to apply to non-resident Americans and the penalty regime thickened.

The criticism… has continued even after the U.S. government committed to enter into Intergovernmental Agreements (IGAs) in an attempt to address those concerns

A huge oversight on the part of the author. FATCA was without question an extraterritorial imposition on other countries. Only the United States would be as uncivil as to suggest imposing a 30% withholding charge on their allies and trading partners. The U.S. appeared not to understand that other countries could not comply even if they wanted to as privacy laws prevented the level of reporting required by FATCA. Banks would be sued were they to comply. To suggest that the US committing to the IGAs was a gracious act is revolting. Under the guise of being rooted in tax treaties, the IGAs simply bypassed what should have been required; that Congress ratify such agreements and implement legislation to do so. There is nothing in FATCA that warrants the creation of the IGAs. The U.S. downloaded ALL of the costs of compliance to the other countries. There is no mention of any penalties for the U.S. failing to comply. The U.S. made only the vaguest promises of reciprocity. It is simply unbelievable that the immorality of taking capital out of other nations is considered acceptable by the United States.

IV>) FATCA:MERITS AND CONCERNS

The OECD’s AEOI and the U.S. FATCA are two important developments, but FATCA plays a more important role.
First, FATCA provided critical momentum
Second, FATCA facilitates multilateral implementation of AEOI by creating an extensive network with more than 100 countries in the world, at the center of which is the United States.

This is unsubstantiated nonsense. First of all, it is bizarre to say FATCA “plays a more important role” Who gains from FATCA other than the United States? So far, nobody. The United States is at the Center of AEOI/CRS? The US has not even signed on to CRS. There are huge differences that matter greatly. The OECD AEOI/CRS agreements are determined by the countries involved; the terms of residency are established by those exchanging the information. FATCA is vastly different in that the United States alone determines who is/is not a “US Person” “US Citizen” irrespective of the status of such a person to the other country. And so far, the U.S. is not “paying its fair share” by requiring its banks to implement the same systems and legislation required (imposed) by FATCA. The IGAs do not constitute “acceptance” by other countries. To think otherwise is ridiculous. One could not possibly view such stipulations as reasonable.

criticism that…. FATCA exposes taxpayers’ private information to potential abusive use by foreign tax authorities.

This is a matter of real concern to Americans abroad living in some of the more troubled areas of the world-or those living Colombia in South America and particularly in some of the Middle East countries. Ironically enough, the U.S. has had some of the worst breaches of security and leakage of private information; certainly this is disturbing and worrisome.

Ms. Kim’s discussion of the Bopp FATCA lawsuit I will leave to someone else.

Second, opponents of FATCA and EOI argue that an EOI system removes a country’s unilateral control over its own tax policy, resulting in the forfeiture of sovereign autonomy. Although such argument has withered since the U.S. government entered into IGAs with other countries, it was strongly asserted by Canadian opponents of FATCA when the IGA Implementation Act included in Bill-31 was debated in Canadian Parliament.

How outrageous to suggest a foreign country does not have the right to have unilateral control over its own tax policy. The proof is in the pudding. The U.S. would never allow the equivalent. The IGA’s are the proof.
I have watched the video of the Canadian FINA hearings on FATCA many, many times. It is not possible to convey the absolute disgust we have for the majority Conservative government which minimized completely, the capitulation that occurred with the implementation of the IGA. It was nothing more than protecting the banks, without any regard to the effect it would have on Canadian citizens resident in Canada.

However, a government’s control over its tax policy is more severely harmed when a country segregates itself from the global community and loses the ability to enforce effectively its own tax laws against its taxpayers with interests in foreign jurisdictions

More unsubstantiated nonsense. This is an opinion completely unsupported up by any facts.

A Case for American Exceptionalism

conclusion, if FATCA makes the world better off by enhancing global transparency on tax information, then this may serve as another support for citizenship taxation, as well as an example of constructive exceptionalism.

While all of us raised in America understand unconsciously what exceptionalism is, it truly takes living outside the country to appreciate how incredibly arrogant and offensive it is. It is questionable whether FATCA “makes the world better off….” that a questionable tenet should “serve as a support for the imposition of citizenship taxation.” It is nothing short of reprehensible that the author should suggest what the U.S. has done is “constructive” or in any way justifies the gross aberration of power demonstrated by the creation of FATCA.

The U.S. Cannot Force a Person Born Outside of the United States to Accept U.S. Citizenship

 

It is odd that we are STILL hearing arguments that refuse to accept a person born outside the United States, having a statuatory (NOT a CONSTITUTIONAL) claim to U.S. citizenship may decide not to accept it. As USCitizenAbroad so clearly states below:

Seriously, do you really believe that the U.S. can deem anybody in the world to be a U.S. citizen?

What if the U.S. decided to pass laws that said:

  • All cars in Japan with a US-made part are the property of the United States …..or
  • Any family with a naturalized US citizen are now citizens of the United States …..or
  • Anyone with a family member who speaks English now is a citizen of the United States …..or
  • If there are 300 sunny days in Canada, Canada now belongs to the United States

 
The reason “the US can force a person to be a citizen” sounds less silly (perhaps) than the 4 statements above is only because your mind is used to the idea that that is possible. And only because other people claim it is so.

The apologists would have you believe that in any argument, if you want to “play in the US’ playgrounds (“markets”) you have to do what the U.S. requires of you.

WEll, they might be able to force SOME of the people a lot of the time but they cannot force ALL of the people all of the time.

So they have managed to stuff FATCA down the throats of every nation on earth via the IGAs. This occurs because of U.S. law plus the U.S.tendency to bully because no nation wants to commit financial suicide.

They cannot force every person born outside of the United States to be a U.S. person, nor to be taxed as one. A person born outside the U.S. does not have a constitutional right to U.S. citizenship. U.S. law is limited to jurisdication. Don’t forget:

  • The United States was completely unable to make FATCA work (jurisdictional/statutory fact)
  • without the IGAs (US bullying of other nations)

 
U.S. Law applies to the U.S.
Be Clear.
Do not believe that U.S. law transcends the laws of your own country.
 
In the end, that person can CHOOSE – to comply or not to comply. Since that is the practical end result of what this argument is about, what is so hard to accept about it?

And if the “but then they won’t be able to go to the US” argument is raised, then that depends upon what that individual chooses. What’s so great about going to the US? “Warm climate and beaches”? Other countries have warm weather and beaches. “Cheaper prices than other places”? – well, compare what you will have to pay in order to get those “CHEAP” prices……….
 
****cross-posted from Brock ****

USCitizenAbroad says
March 15, 2017 at 7:03 am
@All

Q. Do those children born outside the United States to parents who have the statutory right (as has been redefined over the years) automatically have U.S. citizenship imposed on them regardless of the wishes of the parents (and later, the children) or do those children have the right but NOT the obligation to accept U.S. citizenship?

A. They have the right but NOT the obligation to accept/register themselves as U.S. citizens if they so choose.

This discussion has been going on since the inception of Brock and has been the subject of numerous threads.

Furthermore, the answer seems to depend on who you ask (U.S. based immigration lawyers who believe that everybody in the world wants to be a U.S. citizen) or people outside the U.S. (who recognize that the forcible imposition of U.S. citizenship on those born outside the U.S. would be an unjustifiable extension of U.S. law beyond the U.S. borders). Seriously, do you really believe that the U.S. can deem anybody in the world to be a U.S. citizen?

Some explanation follows …

1. The grant of citizenship to people born outside the U.S. is determined ONLY by statute (hence the shifting laws) and NOT by the 14th Amendment of the U.S. Constitution. This means that granting citizenship to those born outside the U.S. is in the discretion of Congress.

2. As everybody knows, under the INA there are only two ways to obtain U.S. citizenship: (A) birth or (B naturalization. Birth means that you ARE a citizen from birth and naturalization means that you BECOME a citizen after birth.

3. The INA is a statute that presumes that every life form on the planet wants to live in the USA and/or wants to be a citizen of the USA and essentially prescribes conditions under which residence or citizenship can be granted or recognized.

4. Therefore the correct way to read the statute “this person IS a citizen” is that:

these are the conditions under which we will recognize somebody is a citizen if that person wants to be recognized as a citizen.

5. The conditions acknowledged in “4” need to be proven by objective, extrinsic and reliable evidence. Even if somebody wants to be a citizen, it won’t be recognized unless those conditions are proven (which is what this post is about).

6. Therefore, unless the parent or later the child makes the claim of citizenship then the person could not be recognized as a U.S. citizen – period. Without being recognized as a U.S. citizen you are NOT a U.S. citizen. Don’t believe me? Just try to enter the U.S. based on nothing more than “I claim I am a U.S. citizen”.

7. There are numerous examples of information from consulates and the State Department (some of which is discussed in the comment thread) making this point clear. (Much of this has been discussed in other posts.)

8. There is not a single known instance of the U.S. Government forcibly imposing U.S. citizenship on somebody born outside the USA. (They are not going door to door and forcing identification of where the parents of children were born). In fact, if you are born outside the USA there is a presumption of alienage – that is a presumption that one is NOT a U.S. citizen (how many would kill for that?)

9. If the parents register the kid as a U.S. citizen, it is probably “game over” and the child IS a U.S. citizen. But even on that point, I believe that it may be possible to argue that a kid whose parent committed “citizenship crime” against his child, by registering him as a U.S. citizen might be able to defend against U.S. citizenship.

Hey, if one can’t renounce U.S citizenship until 18, then maybe one can’t accept U.S citizenship until 18.

10. I attempted to raise this discussion in an extensive post in 2015 which is here:

http://isaacbrocksociety.ca/2015/07/26/help-can-the-united-states-impose-us-citizenship-on-those-born-outside-the-us/

There are additional comments at that post.

A suggestion moving forward …

The Isaac Brock Society (whether you love it or hate it) is the most read and most influential source of information on all things U.S. (probably in the world). I believe that the Issac Brock Society should assume a leadership role by suggesting that the answer is:

Nobody born outside the U.S. is a citizen UNLESS he/she BOTH:

1. Meets the statutory conditions making he/she eligible to receive the statutory recognition of U.S. citizenship; and

2. Voluntarily (directly as an individual or vicariously via a parent) registering that U.S. citizenship.

The problem is that this is the first time in history that U.S. citizenship has been perceived to be such a horrible thing to have. Neither the State Department nor U.S. based immigration lawyers have adjusted to the idea that U.S. citizenship is now a form of cancer (unless you want to live in the United States). Even the border guards believe they are helping you by telling you that you are American. These people have not caught up with the reality that true Obama legacy has been to make U.S. citizenship the most toxic citizenship in the history of the world.

Yup, “Change you can believe in!”

it’s time to articulate the law that is consistent with the Obama legacy …

Brockers have always said that in the area of U.S. tax that lawyers make the law ….

It’s time for the Isaac Brock Society to “lay down the law” on this topic! The law is that nobody born outside the United States is automatically a U.S. citizen. If you meet certain conditions, they you can claim it if you want!

How the “assistance in collection” provisions in the Canada US Tax Treaty facilitates “US citizenship based taxation”

cross-posted from Citizenshipsolutions

The above tweet references the comment I left on an article titled: ”

Why is the IRS Collecting Taxes for Denmark?

which appeared at the “Procedurally Speaking” blog.

The article is about the “assistance in collection” provision which is found in 5 U.S. Tax Treaties (which include: Canada, Denmark, Sweden, France and the Netherlands). I am particularly interested in this because of a recent post at the Isaac Brock Society.

This post discusses the “assistance in collection” provision found in Article XXVI A of the Canada U.S. Tax Treaty. The full test of this article is:

Continue reading “How the “assistance in collection” provisions in the Canada US Tax Treaty facilitates “US citizenship based taxation””

The Reed Amendment

 
UPDATE:

Someone strongly disagreed with my conclusion (Reed cannot be applied) due to worry of dealing with border guards. However, if a border guard were to claim he/she was denying one entry based upon a perception of Reed, such an action would not constitute an application of the Reed Amendment but an inaccurate assessment by an overzealous/ignorant border guard. This reminds me of something I have heard John Richardson say many times; that there will be a solution to one’s compliance predicament but that it won’t likely be a “good” one or one to like. IOW there are no perfect (or necessarily likeable) solutions. If any US govt employee (or compliance or media person for that matter) misapplied the Reed Amendment, that does not constitute wrong conclusions or information in this post. And it certainly does not suggest I am “misleading.” The DHS has indicated Reed cannot be applied. The State Dept has said it can’t apply it. An IRS counsel could not draft regulations and says it cannot be applied. If one thinks a compliance person or a misguided govt official or a media person should be believed over all these, then what more can be said?

If one needs a “stock answer” to a border guard, the simple answer to “Did you renounce for tax purposes” is “No.” If one feels the need to say more something like “I’ve lived in/been a dual citizen for x-number of years and simply feel more CDN/French whatever.” Something as neutral as possible. A zealot would still see such a statement as treason. There are no perfect solutions. I really dislike adding this because the whole point of this post is to give expats the information to STOP that reaction of “but what if”..IOW, the fear factor. I am NOT writing this to diss any firm, govt agency etc (even though I will not hide my anger or disgust at how this is abused). However, I am responding to the criticism mentioned above. FWIW, I hope this helps.
 

See also:

Stop! Enough Already!! The Reed Amendment is a Myth!!!
Homeland Security Enforced Reed Amendment Twice in 14 Years Banished Two Ex-Citizens Who Mentioned Tax Motivations
Who Voted For the Reed Amendment in 1996
BiPartisan Attempts to Exile Former U.S. Citizens
No civilized country would ban Eduardo Saverin

 

no fear montering symbol

NO ONE has been stopped at the border and refused entry because a CBP agent suspected they renounced “for tax purposes.” There is NO CONNECTION between an expatriate’s tax liability and a renunciant’s intent. NONE!   Once again, I see a major firm bringing up the idea of the Reed Amendment as a possible consequence of expatriation.
 
 
 

Individuals who choose to renounce their US citizenship need to be aware of the potential negative consequences of doing so and take steps to avoid them. The negative consequences can include the imposition of the US exit tax[9], permanent inadmissibility from the United States, and the imposition of the inheritance tax.[10]

NEW

Notice the lack of footnote for the phrase concerning permanent inadmissibility. A post on the blog of their website acknowledges that this is a remote possibility-only if you stated that was your reason for renouncing.

However, in the practical application of the original Reed Amendment, the renouncing individual is rarely denied re-entry to the US unless he confesses during his exit interview to be renouncing for tax avoidance purposes. Needless to say, very few expatriates renouncing their US citizenship confess to having tax avoidance purposes. Consequently, identifying those expatriates who renounce for tax avoidance purposes is nearly impossible. Congress knows this and is attempting to tighten the screws on the renunciation program through the proposed Reed-Schumer Amendment.

Just look at the language used; “confesses at his exit interview.” In spite of this, we continue to see this unreasonable emphasis which does nothing but frighten people. I have no argument that it is very likely Congress will try again/make this worse. But is this the right way to present this to people just finding out about this? This has become my number one irritation and I will try to address it again. The point of this post is to debunk the long-standing, commonly mis-communicated information regarding the Reed Amendment.

DEBUNKING:

  • you can/will be turned away at the border if you are an expatriate
  • there is information sharing between the IRS and other agencies
  • the consulate will try to determine whether or not you are renouncing for tax purposes
  • once you renounce you cannot go back

FACTS:

  • while CLNs may be forwarded to the other 3-lettered agencies, NO TAX UNFORMATION may be shared by the IRS; a border guard DOES NOT have access to this information
  • The lack of regulations makes it impossible for the State Department or the DHS to determine tax liability as motive for renouncing
  • the IRS no longer makes rulings on whether or not an expatriate’s intention to renounce is tax-motivated.
  • Most consular officer routinely issue visas to former U.S. citizens

The Congress has created laws that are in conflict with each other, the end result being, that the Reed Amendment is completely useless unless one chooses to state expatriation is due to tax purposes. Our expatriate movement is now almost five years old. Since that time, we have managed to challenge a lot of misinformation put out there by the media, the compliance industry, etc. This is another one to throw on the pile.

The Reed Amendment
 

The United States, ironically enough, has a long history of using citizenship as a way to punish those it deems “ungrateful,” “unpatriotic” etc. Putting aside some of the older versions of this idea, the modern beginnings of punishing those who expatriate began with President Kennedy and the Foreign Investors Tax Act of 1966. This Act created I.R.C. § 877 and allowed some U.S.-source income of former citizens to be taxed for up to 10 years following the date of their loss of citizenship. There were no amendments to 877 until President Clinton’s time in office; at this point, things began to change rapidly and drastically for expatriates.

The Reed Amendment formed part of the Illegal Immigration Reform and Immigrant Responsibility Act of 1996.Enacted on September 30, 1996, it was written by Senator Jack Reed (D-RI)The bill was a response to wealthy U.S. citizens expatriating who then wished to return to live in the United States. Once out of the country, any non-citizen could avoid taxes on capital gains and estates. A well-known example is that of this was Kenneth Dart owner of Dart Container, who had become a citizen of Belize who then attempted to obtain a diplomatic visa to serve as Belize’s new consul in Florida. He offered his own residence to serve as the consulate (while the rest of his family was still living there). Had he succeeded, as a foreign diplomat, he would have been exempt from any obligations to the IRS.

U.S.C. § 1182(a)(10)(E) / INA 212(a)(10)(E)
8 U.S. Code § 1182 – Inadmissible aliens

(a)Classes of aliens ineligible for visas or admission Except as otherwise provided in this chapter, aliens who are inadmissible under the following paragraphs are ineligible to receive visas and ineligible to be admitted to the United States:
(10)Miscellaneous
(E)Former citizens who renounced citizenship to avoid taxation
Any alien who is a former citizen of the United States who officially renounces United States citizenship and who is determined by the Attorney General to have renounced United States citizenship for the purpose of avoiding taxation by the United States is inadmissible.

According to Michael Pfeifer, a tax lawyer with Caplin & Drysdale a difficulty ensued
in determining whether the Reed Amendment would apply to all those renouncing U.S. citizenship under INA 349 a 1; intending to lose U.S. citizenship by performing an expatriating act.

HIPAA In addition to other legislation being considered to apply to expatriates, President Clinton proposed an expatriation tax in his 1996 budget in order to close the loophole.The Health Insurance Portability and Accountability Act enacted August 21, 1996; Title V amends provisions of law relating to people who give up United States citizenship or permanent residence by:

  1. expanding the expatriation tax to be assessed against those deemed to be giving up their U.S. status for tax reasons, (U.S. Code § 877 )and
  2. making ex-citizens’ names part of the public record through the creation of the Quarterly Publication of Individuals Who Have Chosen to Expatriate (U.S. C. § 6039G – the “Name & Shame List”)

 

U.S. Code § 877 – Expatriation to avoid tax a)Treatment of expatriates (1)In general

Every nonresident alien individual to whom this section applies and who, within the 10-year period immediately preceding the close of the taxable year, lost United States citizenship shall be taxable for such taxable year in the manner provided in subsection (b) if the tax imposed pursuant to such subsection (after any reduction in such tax under the last sentence of such subsection) exceeds the tax which, without regard to this section, is imposed pursuant to section 871.

(2)Individuals subject to this section This section shall apply to any individual if—

(A)the average annual net income tax (as defined in section 38(c)(1)) of such individual for the period of 5 taxable years ending before the date of the loss of United States citizenship is greater than $124,000,

(B)the net worth of the individual as of such date is $2,000,000 or more, or

(C)such individual fails to certify under penalty of perjury that he has met the requirements of this title for the 5 preceding taxable years or fails to submit such evidence of such compliance as the Secretary may require

U.S. C. § 6039G Information on individuals losing United States citizenship
(d)Information to be provided to Secretary Notwithstanding any other provision of law—

(3)the Federal agency primarily responsible for administering the immigration laws shall provide to the Secretary the name of each lawful permanent resident of the United States (within the meaning of https://www.law.cornell.edu/uscode/text/26/7701 section 7701(b)(6)) whose status as such has been revoked or has been administratively or judicially determined to have been abandoned.

Notwithstanding any other provision of law, not later than 30 days after the close of each calendar quarter, the Secretary shall publish in the Federal Register the name of each individual losing United States citizenship (within the meaning of section 877(a) or 877A) with respect to whom the Secretary receives information under the preceding sentence during such quarter.

The Reed Amendment is unenforceable

After 9/11, responsibility was transferred from Customs/Border (now CBP) to DHS.

Regulations were never written originally, nor when responsibility was transferred to DHS in 2002
 


 
§ 6103 prohibits the disclosure of “return information,” by the IRS, subject to criminal prosecution under18Title 18 of the U.S. Code. (a)General rule Returns and return information shall be confidential, and except as authorized by this title—

  1. no officer or employee of the United States,
  2. no officer or employee of any State, any local law enforcement agency receiving information under subsection (i)(1)(C) or (7)(A), any local child support enforcement agency, or any local agency administering a program listed in subsection (l)(7)(D) who has or had access to returns or return information under this section or section 6104(c), and
  3. no other person (or officer or employee thereof) who has or had access to returns or return information under subsection (e)(1)(D)(iii), subsection (k)(10), paragraph (6), (10), (12), (16), (19), (20), or (21) of subsection (l), paragraph (2) or (4)(B) of subsection (m), or subsection (n),shall disclose any return or return information obtained by him in any manner in connection with his service as such an officer or an employee or otherwise or under the provisions of this section. For purposes of this subsection, the term “officer or employee” includes a former officer or employee.

The Attorney General was never authorized to receive the information necessary from the IRS.


 

IRS Counsel Willard Yates was tasked with finding a work-around to § 6013. He explains the difficulty:

  1. Customs (now Customs and Border Protection) would have been required to check the names of all aliens appearing at U.S. ports of entry against the list of former United States citizens published by the IRS under HIPAA.
  2. Those who were identified as former U.S. citizens would be required to sign a waiver of their rights under § 6103;
  3. Customs would then fax the waiver to the IRS so that the IRS could provide Customs with tax information relating to the former citizen, in particular whether the former citizen met the asset thresholds of 26 U.S.C. § 877(a)(2), and any private letter ruling regarding whether or not the former citizen had tax motivations for giving up U.S. citizenship.
  4. only one IRS agent would have been assigned to handling such requests; no IRS agent would be available on a weekend
  5. If one arrived on a weekend, he or she might have to be detained until Monday in order for border agents to make the required determination of tax motivation

Important recap: I.R.C. 6103 sets up a situation where there is no way for IRS to give info to CBP or later, DHS; nor is there any way for the Attorney General to receive the information in order to make a determination.
 
Other Difficulties in Enforcing the Reed Amendment
 


 

The Department of Homeland Security In 2014, Senator Reed directed DHS to report
on the steps it was undertaking to enforce the Reed Amendment, including a schedule for issuing guidance or regulations

Some comments from the report:

“Interagency coordination between DHS and DOS operations in this area is improving continuously, but there currently are no advisable options for altering enforcement of the inadmissibility ground against persons who do not affirmatively admit to renouncing their U.S. citizenship for the purpose of avoiding U.S. taxation.”

“even if a renunciant were to waive Treasury confidentiality provisions, such that DHS and DOS might review specifics of an individual’s Internal Revenue Service filings, DHS lacks the expertise and resources to review tax filings meaningfully or engage in complicated tax liability analysis, involving both domestic and foreign tax law to determine whether a section 212(a)(10)(E) inadmissibility presumption could be rebutted.”

Interestingly, DHS makes the observation that it would be difficult to rely on the imposition of such a tax as the basis for determining that a person who is subject to such a tax subjectively renounced citizenship for tax avoidance purposes, as section 212(a)(10)(E) requires, particularly if an individual in fact complied in paying any liability resulting from the expatriate tax provisions

According to the DHS report, only two individuals were denied admission to the United States on the grounds of the Reed Amendment between 2002 and 2015 because they stated they had renounced for tax purposes. Another five individuals were thought to possibly be inadmissible; one who renounced pre-1996 who was denied submitted a legal brief to CBP & the decision was reversed

The Department of State also has no regulations to proceed from and is unable to determine whether a renunciation is based upon avoidance of tax.

FAM 302.10
INELIGIBILITY BASED ON OTHER ACTIVITIES
9 FAM 302.10-6 FORMER CITIZENS WHO RENOUNCED CITIZENSHIP TO AVOID TAXATION – INA 212(A)(10)(E)FAM 302.10-6(B)(2) Consular Officer’s Role
(CT:VISA-85; 03-07-2016)

The role of the Department and the consular officer is very limited in implementing this ground of inadmissibility. Unless the applicant appears as a hit in the lookout system revealing a finding of inadmissibility under INA 212(a)(10)(E), you must assume the applicant is eligible.

9 FAM 302.10-6(D)(2)
(U) Waivers for Nonimmigrants
(CT:VISA-85; 03-07-2016)

For those individuals seeking to visit the United States temporarily, however, this ground of inadmissibility can be waived. You should recommend non-immigrants for an INA 212(d)(3)(A) waiver. The waiver is discretionary and applications are evaluated on a case-by-case basis. (See FAM 305.4-2).

Eugene Chow of Chow & King Associates states that in spite of the Reed Amendment, consular officers “routinely issue visas” to ex-U.S. citizens, and the State Department’s Office of the Legal Adviser has reversed denials based on the Reed Amendment after being made aware of them.
 
ATTEMPTS TO STRENGTHEN THE REED AMENDMENT
 
THE BAUCUS-BINGAMAN-BURNS AMENDMENT – JUNE 2002

Rewrote the 9 U.S.C. 1182 (a) (10)(E) replacing “expatriating for tax purposes” to ”not in compliance with expatriation revenue provisions” (new versions of sections 877 and 2801)(relating to expatriation). It included changes that would allow IRS to release taxpayer information to the Attorney General. It did not pass into law.

THE SAFER ACT JULY 2002

Broadened the entry ban in 8 U.S.C. § 1182(a)(10)(E) to cover all renunciants regardless of whether or not they had tax avoidance motivations. Did not pass into law.
 

THE AMERICAN JOBS CREATION ACT (AJCA) 2004

In 2004, the American Jobs Creation Act removed the issue of intent; established new notification requirements as well as new thresholds resulting in a second type of citizenship (the “Tax Citizen”). Thus, the IRS no longer makes rulings on whether or not an expatriate’s intention to renounce is tax-motivated.
 


 

THE HEROES EARNINGS ASSISTANCE AND RELIEF TAX (HEART ACT) 2008

Included a new expatriation tax. As Mr. Yates pointed out, “The whole idea of the mark-to-market tax under section 877A was to eliminate the “motive” element of a prior version of section 877. It did not include the inadmissibility or tax information privacy waiver provisions. See: Notice 2009-85, Guidance for Expatriates Under Section 877A

Since 2000, the first year for which the State Department’s Report of the Visa Office included the relevant statistics, no consular officer has found any visa applicant ineligible for entry into the United States on the grounds of the Reed Amendment.

However, in 2015, a consular officer in Barbados refused to issue a visa to Roger Ver (“Bitcoin Jesus”) on the grounds he did not demonstrate non-immigrant intent (i.e., the officer suspected Mr. Ver was attempting to return to the United States to live). Some speculation occurred whether it was really due to the Reed Amendment but legal sources stated the known problems of enforcement. Mr. Ver received a visa later from the Embassy in Tokyo.

THE EX-PATRIOT ACT

In May 2012, Facebook co-founder Eduardo Saverin renounced his U.S. citizenship which outraged Senator Reed . He wrote to DHS director Janet Napalitano urging her to prevent him from re-entering the U.S. It should be noted that Mr. Saverin completed the entire process properly including paying a very large amount of Exit Tax. He would be a perfect example of DHS report’s observation that it would be difficult to ascertain one had renounced for tax purposes when “an individual in fact complied in paying any liability resulting from the expatriate tax provision.”

Senator Chuck Schumer (D-NY) knew the Reed Amendment could not accomplish this so along with Senator Bob Casey (D-PA) he created an act that would make former U.S. citizens inadmissible to the United States and charge them 30% capital gains tax on their U.S. investments. It died in committee.

In 2013, Reed along with Schumer & Casey tried to attach the Border Security, Economic Opportunity, and Immigration Modernization Act of 2013 as an amendment to a new bill but failed both in the Senate and later in the year, the House.

THE FUTURE

Expats continue to be threatened with exile as a way to prevent them from leaving “due to tax motivation.” It is important that all members of the tax compliance community understand the interplay of all these factors and stop contributing to the confusion that exists regarding The Reed Amendment.

There is endless fear that even without the Reed Amendment, the U.S. agencies will become digitally proficient and connected, thus a risk at crossing the border. Similarly, there is terror that the State Department will apply all sorts of tax-oriented questions, require returns and so on. Here is where things stand:

FAM 1240
INTERAGENCY COORDINATION AND REPORTING REQUIREMENTS
(CT:CON-611; 11-12-2015)(Office of Origin: CA/OCS/L)
7 FAM 1241 INTRODUCTION TO INTERAGENCY COORDINATION AND REPORTING REQUIREMENTS
(CT:CON-407; 06-29-2012)
a. The Bureau of Consular Affairs (CA) coordinates closely with various offices in the Department of State and other Federal agencies, and with U.S. States, on issues related to expatriation. Much of this interagency coordination is mandated by Federal law and policy guidelines. CA/OCS/L provides copies of approved Certificates of Loss of Nationality (CLNs) to the following Federal agencies pursuant to statutory requirements:

(1) U.S. Citizenship and Immigration Services (USCIS);

(2) Federal Bureau of Investigation (FBI);
The FBI is required to add names of expatriated citizens to the
National Instant Criminal Background Check System (NICS); this list is considered to be much more accurate than the “Name & Shame List.”

(3) Internal Revenue Service (IRS)

(4) In addition, loss-of-nationality cases involving threats against the United States or U.S. officials may also be brought to the attention of the U.S. Secret Service

Of special note: regarding the information requested/discussed at a renunciation interview:

Consular officers no longer obtain tax information from renunciants as previously required by the Health Insurance Portability and Accountability Act of 1996. The American Jobs Creation Act of 2004 (AJCA) made substantial changes to both the tax Section 877 (26 U.S.C. 877) of the Internal Revenue Codes and information reporting rules 26 U.S.C. 6039G that apply to individuals who expatriated or terminated their residency after June 3, 2004.

Questions about expatriation and taxation should be directed to the Internal Revenue Service (IRS) or the IRS Web site. Consular officers are not in a position to provide any advice or answer questions concerning these changes.

And last but not least, DO NOT let any compliance professional tell you it is a good idea to accompany you to the renunciation interview. It will cost you money and though it has not always been adhered to in the past, since July 2015 the State Department indicates it can compromise the issue of voluntary intent.

Other posts about the Reed Amendment:

Stop! Enough Already!! The Reed Amendment is a Myth!!!
Homeland Security Enforced Reed Amendment Twice in 14 Years Banished Two Ex-Citizens Who Mentioned Tax Motivations
Who Voted For the Reed Amendment in 1996